In our system of federalism, competition matters among the states. This reality has been on full display the past few years as people fled big-government states like California and New York to more limited government states like Texas and Florida. But what works best?
The American Legislative Exchange Council’s (ALEC) “Rich States, Poor States” report is a recent comparison of states. Utah, a politically red state, ranks second best in economic performance and first in economic outlook for 2023. Texas, the largest red state, ranks seventh in performance and 13th in outlook. On the surface, this looks pretty straightforward, but a closer look shows that Texas is a leader but needs much improvement.
The report measures performance based on the growth of state gross domestic product, absolute domestic migration, and non-farm payroll from 2011 to 2021. The economic outlook is based on 15 state policy variables, including tax burden, debt and other factors.
Utah beats Texas for state GDP and nonfarm payroll growth rates, while Texas wins for absolute domestic migration. This is thanks to people leaving states like California and New York, which rank 45th and 50th, respectively, in outlook, and coming to Texas in search of more economic freedom.
Should Utah be a model for Texas? Not necessarily.
Note that Utah’s population is about 3.4 million. Texas has more than 30 million people or nearly nine times more people than Utah. Utah is also less diverse, with 77.2% of its population being white, 14.8% Hispanic, and 1.5% black, compared with Texas’ population being 40.3% white, 40.2% Hispanic, and 13.2% Black. Texas also has twice the share of foreign-born residents, with 17.0%, whereas Utah has just 8.5%. Utah has a much lower poverty rate at 8.6% compared with 14.2% in Texas.
Clearly, there are significant differences between these two red states. And what works well in Utah likely may not fit well in Texas, given their substantially different demographics and economies.
While the ALEC report is insightful, a cursory glance at the two ranks is just that. Considering all the metrics it provides along with state population and diversity, there’s a more holistic picture of which states are thriving.
A more reasonable comparison for Texas based on economic and population sizes and diversity is the second largest red state of Florida.
Florida has a population of about 22 million, with 52.7% white, 26.8% Hispanic, and 17.0% Black, while 21.0% is foreign-born, and the poverty rate is 13.1%. According to ALEC’s report, Florida ranks first for performance, better than Utah and Texas, and 9th for outlook, better than Texas.
Texas and Florida boast business-friendly policy climates, typically spend responsibly, have no state income tax, and are right-to-work states. And the performances of their economies are robust based on multiple indicators.
But two of the biggest factors that put Florida above Texas are the same ones that help put Utah above Texas now and for the foreseeable future: lower property tax burden and universal school choice.
According to the Tax Foundation, individuals have the 6th highest property tax burden in Texas, 26th in Florida, and 43rd in Utah. Texas’ outrageous property taxes, which are high in large part due to too much local spending, is causing an affordability crisis as home and property values have risen faster than wages for too long. If businesses perceive the cost of doing business as too high due to high property taxes, they may choose to locate elsewhere, which results in less investment, economic growth, and job creation.
This is why Texas should spend responsibly and use the at least $33 billion surplus to compress the school district maintenance and operations property taxes that are essentially controlled by the state’s school finance formulas. Combine this with spending restraint at the state and local levels and Texas could put property taxes on a path to elimination within a decade so that Texans can finally fulfill their right to own property while ending a bad wealth tax.
Finally, when it comes to school choice, Utah and Florida joined the universal school choice revolution this year, while Texas is still fighting for it. Universal school choice is critical for improved state economies as it’s linked to improved student outcomes and increased teacher pay, both essential to becoming more competitive and producing a population with less criminal activity and higher economic earnings, to name just a few benefits.
In short, competition matters! While it’s misleading to declare that Utah or Florida economically outperform Texas overall based on the differences outlined here, they do put pressure on Texas to improve or risk falling behind. Decreased property taxes and universal school choice mean more freedom, which empowers people to prosper. Time is running out this session so the Texas Legislature must act promptly.
Originally published at The Center Square.
Vance Ginn, Ph.D.